Sellers will likely be schooling like sardines around Connor Bros. Income Fund again Friday after the botulism warning the U.S. Food & Drug Administration issued Thursday against the Canadian firm's Castleberry chili and hot dog sauce, leading it to recall some 20,000 cases of the stuff.
Investors hacked Connors units down by 5.5 per cent or 61 cents to $10.52 after the news broke and analysts are predicting another weenie roast today, even though the affected products represent only a small portion of the fund's sales.
"Given that CBF is mainly a seafood company (80 per cent of profits), we expect an over-reaction by retail investors still fearing another Menu Foods situation [and this]could create a buying opportunity," Blackmont Capital analyst Barbara Gray told clients in a note Friday morning, referring to the Canadian white-label pet food giant whose units plunged 50 per cent after it was forced to recall massive amounts of tainted products.
However, over at RBC Capital Markets, analyst Katia Ivanova figures this amounts to a selling rather than buying opportunity. She said in a note to clients that she has chopped her recommendation on Connor Bros. to sell from hold - or to "underperform" from "sector perform," to use the firm's jargon.
"The recalled volume is small versus the fund's overall volumes, but negative publicity, litigation and further adverse developments could escalate the issue," said Ms. Ivanova, who also cut her 12-month price target on the units to $10 from $11.50.
"The units remain fully valued relative to the peer groups, and we see a low probability of a takeout," she added later in the note.